Nedbank: Money supply and credit

30 Sep.

Nedbank Economic Commentary: Money supply and credit.

Private sector credit growth picks up.

• Private sector credit extension picked up further in August, increasing to 6,1% y-o-y from 5,7% y-o-y in July. This was well ahead of market expectations of 5,5%.
• A rise in credit extended to companies, which rose from 5,5% to 7%, and a strong increase in the investments category, were behind the gain. In contrast, credit to households eased off further, moderating to 5,2% from 6,6%, due to a slowdown in mortgages to below 2% y-o-y.
• Annual growth in money supply rose to 6,2% from 5,6% in July.
• Consumer credit will remain modest over the coming months. Slower income growth, weak confidence and high debt levels will hamper demand, while banks will be wary of extending credit into areas which face increased regulatory pressures.
• This month’s data will not be a source of concern for the Reserve Bank as there is no evidence of strong credit-led consumer demand. If anything, the figure still underscores the fragility of the upswing as the categories which improved tend to be more volatile.
• The Bank will continue to watch for signs that the global economy is slipping into recession and how the domestic economy is fairing. With growth under threat, the MPC will probably opt to keep rates on hold until there is clear evidence of improved growth momentum. Should the global economy slip back into recession a cut in rates may be on the cards. However, for now, we maintain our view of unchanged rates until July 2012.1,3%.

Comment
Private sector credit extension picked up further in August, increasing to 6,1% y-o-y from 5,7% y-o-y in July. This was well ahead of market expectations of 5,5%. A rise in credit extended to companies, which rose from 5,5% to 7%, and a strong increase in the investments category, were behind the gain. In contrast, credit to households eased off further, moderating to 5,2% from 6,6%, due to a slowdown in mortgages to below 2% y-o-y. Annual growth in money supply rose to 6,2% from 5,6% in July, increasing by 1,3% m-o-m. Net claims on the private sector rose by R27,6 billion, while net foreign assets rose by R18,9 billion, which was largely offset by a R19,1 billion decline in net other assets. …

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